Finance Minister Nirmala Sitharaman is attending a key two-day meeting of a Group of Ministers (GoM) on GST rate rationalization, which began today, August 20, 2025. The meeting, which also includes GoMs on compensation cess and health and life insurance, is a crucial step toward “next-generation” GST reforms.
A New Tax Structure on the Horizon
The government is pushing a major reform proposal to simplify the current four-slab GST system of 5%, 12%, 18%, and 28% into a two-tier structure with rates of 5% and 18%. A special 40% rate would be applied only to a few “demerit” goods like tobacco and pan masala.
The core idea is to shift nearly all goods from the 12% slab to the 5% category and most items from the 28% slab to the 18% bracket. This move aims to lower prices on everyday items, ease the tax burden on the middle class, and boost the economy.
Economic Benefits and Outlook
According to an SBI Research report, while the reforms might result in an initial annual revenue loss of ₹85,000 crore, they are projected to boost consumption by an estimated ₹1.98 lakh crore. Similarly, S&P Global Ratings suggests that a simplified two-rate system could enhance fiscal revenues in the long run by making compliance easier and reducing disputes.
The proposal, if approved by the GoM, will be presented to the GST Council next month. With Prime Minister Narendra Modi’s promise of a “Diwali gift” through these reforms, the government hopes to implement the changes to make goods more affordable for consumers during the festive season.